The Involvement of Senior Management Involvement in Financial Crimes

White collar crime is a common notion within the organizations of today. According to a research conducted by KPMG, it was found that senior management is far more likely to be involved in fraudulent activities within an organization than the junior staff. Chief executives, finance directors and other senior managers who have an inside route commit more crimes than the workers employed at entry level positions. It is easy to understand that the pressures of work and access to sensitive data may encourage senior managers to take such steps.

Fraudulent activities like misrepresentation of data, expense abuse and theft are the most common white collar crimes. The downturn of the economy has also made is easier for senior management to commit frauds. These activities may go undetected for long without any notice.

According to the latest fraud trends, a typical person who commits fraud is usually a 36 to 45 year old male holding a senior position in the finance department. This person has been working for this company for more than a decade now and so feels comfortable. He works with a partner in collusion to commit the financial crime.

There has been a huge jump in the number of such cases in companies, from 49% back in 2007 to an alarming 74% in 2016. This fact alone should send alarming bells to companies who are prone to such frauds. Weak internal controls have opened vulnerabilities for exploitation by financial criminals.

The main motivation for committing these frauds is personal greed – which has always been a common factor. The worsening economic conditions and recession are also to be blamed for an upsurge in these fraudulent activities. The external pressure has forced companies to cut down costs in risk management and controls, creating more opportunities for fraudsters to hide behind and go undetected.

Due to these pressures, senior managers falsify accounts or siphon off funds. Wrong figures are often used in order to meet unrealistic targets. Tough profits and budget targets are required to be met by senior managers, pushing them towards frauds.

Companies are to be blamed because of setting lapse controls within the company. Companies which set realistic and achievable targets tend to have lower fraud incidents in their organizations. Fraudsters usually work within their company’s finance departments. The easy access to company’s assets and credit lines offer a temptation for them to commit a financial crime.

Women who have secured senior positions have also been found to be involved in financial crimes. Statistics show that men commit frauds in senior positions because a lower number of women make it to a senior position over all. Identifying fraud takes longer in some countries as compared to others.

A senior manager could be involved in fraudulent activities and go undetected for years. Some cases can identify frauds quickly, but some companies who have lax internal controls may lose good money at the hands of someone in charge.

In a number of organizations in Asia, employees do not challenge their superiors like in Western Europe and North America. The superiors could be involved in fraudulent activates and the junior management may be aware but they’re afraid to point it out. This is the case of the societal standards set through history. On the other hand, people in North America and Western Europe can shake the boat with confidence.

A confident and accountable societal behavior where the subordinates can question the senior management leads to early fraud detection. This can further make the senior management accountable of their actions. The fear of a broken reputation and loss of steady income is enough to discourage any senior manager from committing a financial crime.

The risk of financial crime can be mitigated by training and educating the employees of the organization. The company’s internal code of conduct and controls should be designed in a way that helps every employee be a part of detection process. The business should be supported front-to-back with regulatory policies and procedures which help detect financial crimes well in time.

Most businesses have established layers of control to prevent frauds and financial crimes. The first line of defense is protected via systems and the second layer by a senior manager. The senior manager looks at flaws in the controls and raises red flags. Trust in this senior manager is essential as they have access to sensitive data with company’s asset control.

The senior manager should watch out for any money laundering activities taking place within the organization. The reporting officer should be responsible for taking appropriate measures and setting standards to prevent money laundering. Fraudulent activities should also be detected right in the beginning.

Both the layers of security are relied on each other and firms must make sure that the senior manager is also accountable. Every employee must be treated equally and misuse of authority should be discouraged. The financial crime reporting officer should not overlook other activities that may raise concerns regarding frauds.

An organization must define financial crime activities clearly in its handbook and every employee should be educated in this regard. The definition of financial crime must support the roles and responsibility of the senior manager while supporting the already existing governance structure.

The right integration between the policies and procedures will help create a stable and fair structure which will help identify senior management frauds at an early stage.